Why The Market Expects The ECB To Soak Up All Remaining 2012 Issuance

Tyler Durden's picture

Just what is priced in? That is the question. Based on the aggregate size of the Fed and ECB balance sheets, it appears the S&P 500 is pricing in an increase of around USD300bn in the short-term. This USD 300bn amounts to EUR 240bn - a very special and rather too coincidental number. Based on expectations of supply, the EMU16 nations have EUR 245bn issuance remaining for the rest of 2012. So, it would appear that the market, in its ever-hopeful ebullient way has priced in the expectation that the ECB will soak up the entire remaining debt issuance of the 16 (remaining) Euro nations for the rest of the year. Anything less will be a disappointment - and remember each nation will have to ask for 'help' before receiving this 'support'. Coincidence, maybe? Over-confidence, perhaps? Reality, not a chance.


Comparing the S&P 500's 'expectations' to the aggregate USD value of the Fed and ECB balance sheets over time shows that LTRO2's impact was well-priced in - as was LTRO1 (though less so). Given current levels, SMP 2.0 implies growth of around USD 300bn (or EUR 240bn)...



which just happens to be...


So the equity market - in all its fundamental-ignoring reality - has priced in a conditional put as implicitly triggered for all European nations...


Perhaps even more remarkably - it would appear Gold has been correctly anticipating Fed/ECB actions since the crash lows in 2009. Somewhat explains the 'stagnation' in Gold and the recent breakout once again...(also providing some insight into Gold's downside risk)


Charts: Bloomberg and Morgan Stanley

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sphinx_www's picture

And the market was correct in the past 2 years. Can you blame it?

Haager's picture

What market, for hells sake?

singsing's picture

All those Euros will be lost in time, like tears in rain.

agent default's picture

So? Plenty to go around.  Bring a wheelbarrow. 

chump666's picture

Hence the rumor on wires was 'sterilized unlimited ECB buying.'

It's the bull trap from hell.  This market is done till the FOMC, even then...

zorba THE GREEK's picture

If the market is pricing it in, then it's probably going to happen.

Don't fight the market's ability to see the future.

A person should not make predictions, especially about the future???????

Time for another rum & whatever. Where am I? Is anyone there?

Bentini's picture

"A person should not make predictions, especially about the future???????"

Should it make predictions of the past or present? LOL


DoctoRx's picture

Tyler, don't you mean all remaining 2012 issuance?

Mr Lennon Hendrix's picture

Scenario 1)  The ECB begins a "sterilized" bond buying program.  The Fed keeps jawboning.  The German court kicks the can or allows the bond buying program.

Scenario 2)  The ECB jawbones, the Fed jawbones, the court kicks the can.

Scenario 3)  Both Banks take action.  The ECB buys bonds, the Fed begins a new program, and the German court allows it.

Scenario one would create an imbalance and there may be a quick bull move for finance but it won't last.  This is the same two-step we have played since 2008.

Scenario two will reach a crecendo.  There will be a point when the Banks need to take action or else there will be a deflationary shitstorm.  If there is a deflationary shitstorm then it will be proven that the policies of the Banks from 2008 until now have not worked.  Economics would change overnight.

Scenario three will create great inflationary pressure.  Pressure so great faith could be lost in the currencies that pays the debt, because the debt is so great, how could it ever be paid off?  Faith is all that backs these currencies, so if it is lost then the currencies themselves will be lost.

But wait!  I almost forgot the kicker.  The German court says "Nein!"  In this case shit hits the fan because Germany pulls out of the euro I would guess.  We will call this the "Lindsey Williams Scenario".

vertexa's picture


If ECB disappoints the market tomorrow, it will trigger sharp worldwide selloff and global recession!

Kiwi Pete's picture

I don't think the ECB will disapoint. Gold and silver leaking upwards as the insiders stock up.

Western's picture

Insiders bought physical 8 years ago.


You're confusing them with the idiots.

Zero Govt's picture

the idiot was Gordon Brown selling Gold 8 years ago

Western's picture

I'm talking about insiders like the ones that told G Brown to sell.

SilverIsKing's picture

Big disappointment tomorrow. EURCHF move today looks like a stop run. Planted rumors of 1.22 peg...no way. EUR falls and SNB lowers peg? Could happen. Why are trading houses forcing liquidations of EURCHF positions? Which way do metals move? Could be the cover needed to raid the metals. Interesting shit. Maybe I'm nuts. That could be true too.

mayhem's picture

I am betting on Calamity. She is the vixen of all vixens and even if the market gets stimulus out the ass how much will the maket be bought up. There seems to be more downside potential no matter what the news. Damn mayhem to spread evErywhere

chump666's picture

That she is...

ECB can't do anything but give their groundwork for SMP2, if the German legal system (Sept 12) fails the German's and Europeans and allows all out unlimited buying by the ECB.  Europe Union is joke beyond jokes.  They won't though.  ECB will be put in their place (but still covertly print as hey have been doing anyway).

But yeah, sharp sell off coming. 

Haager's picture

Guess it will be bullish mostly. France gets lots of money today.

What if interest rate will be increased by 0.25 today, added by the desired bond buying program announced by No Remourse Draghi? Drop on Friday, Monday, big bond buying on the following Tuesday, Wednesday with BS news.

Mr Lennon Hendrix's picture

Phillip the whatever of France purged the Templars because he was in debt to him.  Everyone always finds a scapegoat.

Mr Lennon Hendrix's picture

Perhaps even more remarkably - it would appear Gold has been correctly anticipating Fed/ECB actions since the crash lows in 2009. Somewhat explains the 'stagnation' in Gold and the recent breakout once again

They use gold as a reserve to spin loans to finance their balance sheets.  It is the prop trade.  It is the loan of first recourse.  This is how it is used to lead finance.

Zgangsta's picture

Gold @1700, bitchez.

Colonel Klink's picture

ECB = Creosote bank!  Keep sponging up bad debt until everything explodes.

q99x2's picture

It is counterfeit money. They won't dissapoint anyone that matters to them.

bentaxle's picture

Any idea how far off the ECB balance sheet is of being greater than the EU money supply itself. Can't be long?

SmoothCoolSmoke's picture

When do the fireworks commence, EST?


sbenard's picture

I've come to accept that on Wall St, worship of central bankers is so pandemic that "bad news is always good news". The worse the news, the greater the expectation of free money, and the higher stocks go. They have removed all perception of risk from the market.

And if that's not the definition of a bubble, I don't know what is!

RiskAverseAlertBlog's picture

These correlations probably can be maintained only so long as an environment where the inexorable removal of excess capacity of all sorts (including labor) can be somewhat controlled. Howver, hyperinflation is a condition whereby such effort increasingly fails ability. I believe central bankers know conditions wherein their control is lost is at the doorstep, yet there is nothing they can do, being criminally insane, but encourage its entry onto the scene.

disabledvet's picture

really? which market are you talking about? it sure isn't this one: http://www.ft.com/intl/markets/europe
yield spreads compress in Spain but the euro rallies on the news? huh? what's the cost of fuel in Spain?http://www.drive-alive.co.uk/fuel_prices_europe.html. (those are liters in case you folks are thinking "how cheap!") the costs have risen 28 percent as of August 15th...in just two months. now you want to make borrowing cost cheaper for "the outliers"? that will only drive the price higher. the euro must fall, prices must rise, yields must blow out. AGAIN. we've had this pattern for some time now actually..."euro rallies, triggering flood of gold buying, triggering monetization, triggering" well, you get the point.